§395 Prohibition on Contracts with Corporate Expatriates

Summary

The Secretary must not enter into a contract with a foreign company that really became foreign by buying almost all the assets of a U.S. company and keeping most ownership with the old U.S. owners, or with any subsidiary of that company. A foreign company is treated that way if, under a plan, it bought substantially all the property of a U.S. corporation or the main business of a U.S. partnership (before, on, or after November 25, 2002), at least 80 percent of its stock is held by the former U.S. owners after the buy, and the larger corporate group does not have substantial business activity in the foreign country where the company is formed. Rules and definitions: stock held by members of the expanded affiliated group or stock sold in a related public offering does not count toward the 80 percent test; an acquisition made during the 4-year period that begins 2 years before the 80 percent ownership is met counts as part of the plan; transfers done mainly to avoid the rule are ignored; domestic partnerships under common control are treated as one partnership; the Secretary will make rules to treat things like warrants, options, and convertible debt as stock or not stock. "Expanded affiliated group" follows tax law section 1504(a) but uses "more than 50 percent" instead of "at least 80 percent." "Foreign incorporated entity" means an entity treated as a foreign corporation for tax purposes, and the words person, domestic, and foreign use the meanings in tax law section 7701(a). The Secretary can waive the ban for a specific contract if that waiver is needed for national security.